BIR Ruling [UN-017-94]

January 14, 1994 BIR RULING [UN-017-94] Joaquin Cunanan & Co. 8th Floor, BA Lepanto Bldg. 8747 Paseo de Roxas Makati, Metro Manila Gentlemen : This refers to your protest, in behalf of your clients Bristol Laboratories (Philippines), Inc. (Bristol-PI) and E.R. Squibb & Sons Philippines Corporation (Squibb-PI), against the proposed assessments involving the amounts of P100,635.10 and P16,000.00 representing 25% surcharge and compromise penalty, respectively, for failure to pay on time the corresponding documentary stamp tax in connection with the transfer of shares from the abovenamed clients to the present owner, Bristol Myers, Squibb Co., thru a series of property dividend declaration. There is no question that the said transfers of shares are subject to the documentary stamp tax; in fact, your clients immediately paid the basic documentary stamp tax in the amount of P402,540.39 under Authority To Accept Payment SN No. 568543 dated May 12, 1993. You believed however, that the aforesaid transfers of shares should not be subjected to surcharge and penalty on the ground that while the said transfers took place on March 3, 1992, no new shares of stock were issued pending receipt of the approval of your clients application for a tax treaty relief. In support of your request, you cited Supreme Court decisions as well as rulings of this Office upholding your contention. In reply, please be informed that after a careful study of facts of the case and the applicable law and jurisprudence, this Office finds your contention to be meritorious. Pursuant to Section 175 of the Tax Code, as amended, the documentary stamp tax is imposed on every original issue of certificates of stocks. Mere issuance of the shares does not necessarily constitute a sure or legal basis for issuance of certificate of stock. Shares may be issued but not fully paid which would not justify the issuance of certificate of stock. (Nolledo's Commentaries and Jurisprudence on the National Internal Revenue Code) Thus, this Office had ruled that it is the actual issuance of the certificates of stocks to the stockholders that makes the corporation liable to affix the requisite documentary stamps. (BIR Ruling No. 236-88) And in BIR Ruling No. 031-89, we again ruled that the documentary stamp tax is a tax on transaction and the taxable transaction is the act of originally issuing the certificates of stocks. The above rulings are in accord with the Supreme Court decision in the case of Commissioner of Internal Revenue vs. Construction Resources of Asia, Inc., G.R. No. L-68220, November 25, 1986 holding that a documentary stamp tax is an excise tax because it is levied upon the privilege, the opportunity and the facility of issuing certificates of stocks, the latter being the document evidencing ownership of stock in the corporation. In the instant case, your clients became liable to the documentary stamp tax upon the issuance of the Certification on May 26, 1993 authorizing the transfers of shares from your clients to Bristol Myers Squibb Co. Accordingly, since you have already effected the payment of the corresponding documentary stamp tax in the aforesaid amount of P402,540.39 even prior to the issuance of such Certification, this Office hereby waves the imposition of the 25% surcharge and penalty in the respective amounts of P100,635.10 and P16,000.00, thus granting your aforesaid request. cdta You may, therefore, consider the case closed and terminated. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue